1. Henrik Lange Executive Vice President and CFO
SKF Capital Markets Day  10 September 2014
21 April 2017

2. Agenda Financial development Cash flow, working capital
Financial position
Acquisitions
Second brand
Key business message
CMD 2014

3. Financial development1
Financial development

4. SKF Group – Half year 2014 Financial performance (SEKm) 2014 2013
Net sales
34,689
31,544
Operating profit
4,120
3,317
Operating margin, %
11.9
10.5
Operating margin excl. one-time items, %
Profit before tax
3,548
2,864
Basic earnings per share, SEK
5.26
4.10
Cash flow after investments before financing excl. EU payment
1,164
255
Cash flow after investments before financing
-1,661
Organic sales growth in local currency:
SKF Group
5.2%
Europe 3%
Strategic Industries
9.0%
North America
Regional Sales and Service
2.2%
Asia
13%
Automotive
4.5%
Latin America 1%
Middle East and Africa
18%
Key points
Sales volumes up by 5.0% y-o-y.
Manufacturing was higher compared to last year.
CMD 2014

5. Business segment margins
On sales including Intra-Group sales H1 2014
On external net sales approx. figures H1 2014
Automotive business (~27%)
Automotive Automotive excluding one-off
4.0% 4.8%
4.7% 5.7%
Industrial business (~65%)
Strategic Industries SI excluding one-off
10.4% 10.6%
Regional Sales and Service RSS excluding one-off
11.0% 11.3%
Industrial business Industrial business excluding one-off
13.4% 13.7%
CMD 2014

6. Long-term financial targets
Targets Operating margin level 15% Annual sales growth in local currencies 8% ROCE 20%
Definitions:
ROCE = Operating profit/loss plus interest income, as aprecentage of twelve months rolling average of total assets less the average of non-interest bearing liabiities
CMD 2014

7. 15% 8% 20% Financial targets Operating margin
Changes in sales in local currency incl. structure
20%
Return on capital employed
One-time item
One-time item for the individual year
Amortization:
represents as margin around 0.5% in 2013, and 0.7% in H
As from 2016 it is estimated to represent around 1.0% margin.
CMD 2014

8. SKF Group – operating margin development
3% Gap
CMD 2014

9. How we will close the 3% operating margin gap15
Actions:
Restructuring and efficiency
Implement the restructuring and efficiency program
Implement business excellence fully
Sales growth
Continue to drive growth in the business
Drive R&D to generate more new products / soultions
Productivity and portfolio
Evaluate portfolio
Drive productivity in all areas 12 H1
2014
Restructuring
and efficiency
program
Sales
growth
Productivity,
portfolio
Infl.,
other
Target
CMD 2014
10 September 2014
SKF Capital Markets Day

10. Cost split, operating expenses 2013: SEK 57 billion
Depreciation and amortization 3%
Other 26%
Improvement activities:
Purchasing activities in the restructuring program
Material 36%
Employees35%
Improvement activities:
Productivity improvement and manufacturing footprint activities in the restructuring program
CMD 2014

11. Cost reduction – specific programme 2012-2015
Main activities:
Consolidation of manufacturing - merger between sites - transfer to faster growing markets with more local production
Optimization and productivity improvements - in the manufacturing and demand chain processes - in administration and support functions
Reduction in purchasing cost - mainly through standardization and rationalization of the supplier base.
Reduction of annual cost by SEK 3 billion by the end of 2015
Total cost for the programme around SEK 1.5 billion
2,500 people impacted,
CMD 2014

12. SKF’s programme to improve efficiency and reduce cost
Restructuring, SEKm:
Q4/12
Q1/13
Q2/13
Q3/13
Q4/13
2013
Q1/14
Q2/14
Total
Cost taken
200
250
190 50
490
100
790
People affected
530
410
320
130
860
170
1,560
Giving future gross savings, SEKm:
Full year gross saving
150
100 80 40
220
470
Realized gross savings from total programme, SEKm:
vs 2012
vs 2013
Q1/13
Q2/13
Q3/13
Q4/13
2013
Q1/14
Q2/14
2014
Restructuring 15 35 75
200 70 50
120
S&A
Purchasing
100
400 60
160
Total
165
185
225
800
130
150
280
Note: Run rate Q SEK 1,340 million vs 2012.
CMD 2014

13. S&A and R&D cost development% %
Flat
+1.5%
CMD 2014

14. Cash flow, working capital2
Cash flow, working capital

15. Cash flow, after investments before financing excluding acquisitions and divestments
Summary:
Good cash flow generation
Going forward - use cash flow to deleverage balance sheet
SEKm
CMD 2014

16. Free cash flow conversion
Strategy:
Profit improvement
Capex and working capital management
Comments:
FCF = Net cash flow after investments before financing excluding acquisitions / divestments
2013 adjusted for the SEK 3,000 million provision for the EU fine.
CMD 2014

17. Working capital management focus
Step-up activities to improve our net working capital % sales:
Reduce inventory in % of sales - Increase supply flexibility
- Optimize product range and service policies
- Improve forecasting and end-to-end planning
Improve A/R % sales ratio
- Focus on reducing overdues
- Outsource collection in selected countries
Get effects on A/P from new purchasing activities
- Implement improved payment terms through Group Purchasing
- Set-up supply chain financing structure
CMD 2014

18. SKF outsourcing of A/R collection
Collection process will be handled by an external party using appropriate system support for effective handling
Covering the following countries: Sweden, Denmark, Norway, Finland, Belgium, Holland, UK, Italy, France, Austria, Switzerland, Germany, Portugal, Spain, Czech Republic, Hungary, Poland and USA
Collection contacts will be done in local languages.
All countries within scope are expected to be implemented during 2015.
Benefits expected in 2015/2016
CMD 2014

19. Supply chain financing process and set-up
Simplified overview of setup 1
Supplier sends goods and invoice
Supplier
SCF IT plaform 3
Supplier requests early payment 2
SKF approves invoice 5
SKF pays invoice at maturity 4
Supplier receives payment
BANK
Benefits and cost:
Supplier benefit: Faster payment and lower capital cost
SKF benefit: Extended Days Payable Outstanding (DPO)
Cost: Bank charges suppliers equivalent to: SKF negotiated interest rate + service & IT fee
CMD 2014

20. Summary of supply chain financing
SKF plans to increase days payable to support working capital
Supply chain finance will create win-win for most suppliers driven by beneficial rates
Supply chain finance is a tool for suppliers in order to receive earlier payment of invoices
Implementation started by selecting a bank and on-boarding of pilot suppliers in Europe planned for Q4 2014
Focus initially is Europe
Global roll-out in scope after implementation in Europe
CMD 2014

21. Net working capital 2013 and target
SEKbn 2013 % of sales Target Net sales external 63.6 Inventories % Trade A/R % Trade A/P % Net working capital % 27.0% Improvement to reach target = SEK ~3.0 billion
Activities ongoing:
Flexibility, product range & end-to-end planning – inventory
Overdue reduction & outsourcing of collection of A/R
Payment terms & supply chain financing
Total SEK ~3.0 billion By 2017
CMD 2014

22. 3
Financial position

23. Capital structure, H1 2014 Goodwill, intangibles 19,775 Fixed assets
14,341
Equity
21,360
Inventories
14,769
Post-employment benefits
10,754
Other assets
21,132
Loans
23,972
Cash, fin. assets
4,021
Other liabilities
17,952
74,038
Actual Target
Equity/assets ratio 29% ~35%
Gearing 62% ~50%
Net debt/equity 144% ~80%
Credit rating BBB+,Baa1, stable outlook
Debt ,726
Net Debt ,705
Financial position, debt structure and liquidity are balanced.
CMD 2014

24. Balance sheet and leverage
Balance sheet H1 2014, SEKm
Cash, fin assets 4,021
Debt 34,726
Net debt 30,705
Equity 21,360
Strategy
Deleverage back to target level through:
- Profit improvements
- Balance sheet management
CMD 2014

25. Current debt structure
EURm
750
500
500
200
100
100
110
100
Credit facilities:
EUR 500 million SEK 3,000 million EUR 150 million 2017
No financial covenants or material adverse change clause
CMD 2014

26. History of strong cash flow generation and a shareholder friendly distribution policy
H1 2014, accumulated rounded figures, SEKm
________________________________________________________________________
EBITDA 93,000 Investments (23%) 21,000
Fin. Net, taxes, wc, others (40%) -37,000 Acquisitions (24%) 22,000
Cash flow from operations (60%) 56,000 Dividends/redemption (35%) 33,000
Extra pension funding (3%) 3,000
CMD 2014

27. 4
Acquisitions

28. Acquisition criteria
Strategic fit with clear potential synergies and ability to exploit these in a reasonable timeframe.
Strong commitment and ownership by acquiring business area.
Profitable high quality companies with strong management and preferably larger deals.
EPS accretive in the first full year, positive TVA effect in two to three years, including amortization of intangible assets.
CMD 2014

29. Acquisition strategy for profitable growth
Acquisitions are seen as one important driver for growth and value creation.
Integration of Kaydon and BVI is going well with synergies in line with plan.
SKF has the financial means and acquisition project resources in place to continue to pursue relevant acquisitions.
Focus is on SKF platforms and PT products.
CMD 2014

30. Acquisition 2003-2013 Identifying gaps and opportunities in all platforms
Bearings
and units
Seals
Services
Lubrication
systems
Mechatronics
Products
Technologies
Geographies
Industries
SNFA (2006)
Economos (2006)
Baker (2007)
Safematic (2006)
ABBA (2007)
GLO (2008)
Macrotech (2006)
Macrotech (2009)
Jaeger (2005)
S2M (2007)
Kaydon (2013)
Vogel (2004)
Lincoln Industrial (2010)
QPM (2008)
PMCI (2007)
ALS (2007)
TCM (2003)
Scandrive (2003)
PB&A (2006)
Sommers (2005)
Monitek (2006)
Cirval (2008)
Peer (2008)
BVI (2013)
GBC (2012)
CMD 2014

31. Major acquisitions performance
Bearings
and units
Seals
Services
Lubrication
systems
Mechatronics
Products
Technologies
Geographies
Industries
SNFA (2006)
Economos (2006)
Baker (2007)
Safematic (2006)
ABBA (2007)
GLO (2008)
Macrotech (2006)
Macrotech (2009)
Jaeger (2005)
S2M (2007)
Kaydon (2013)
Vogel (2004)
Lincoln Industrial (2010)
QPM (2008)
PMCI (2007)
ALS (2007)
TCM (2003)
Scandrive (2003)
PB&A (2006)
Sommers (2005)
Monitek (2006)
Cirval (2008)
Peer (2008)
BVI (2013)
GBC (2012)
CMD 2014

32. Major acquisitions performance
The sum of the major acquisitions perform in line with the Group acquisition criteria.
The sum of the major acquisitions represent 14% of Group sales in H
The sum of the major acquisitions represent 18% of Group operating profit in H
Acquisitions form a part of the SKF profitable growth strategy.
CMD 2014

33. 5
Second brand in SKF

34. Strategy for second brands
Capture mid-market growth
Lower cost manufacturing
Global market approach
Segment focus
- PEER, Industrial segments
- GBC, Auto, HD segments
CMD 2014

35. Second brand value proposition in normal application
Engineering design vs cost
Manufacturing consistency
Differentiate against 1st tier
Cost competitive in normal performance application
Customization flexibility
Speed and responsiveness
Performance
Normal Application
Target
Differentiate against 2nd, 3rd tier
Industry leaders’ supplier
Consistency, long term sustainable approach
Globally local sales and engineering support
Production
Samples
Production
Samples
Production
Samples
CMD 2014

36. How SKF has developed PEER since acquisition
Sustainably achieved great financial results
Achieved 15% sales growth per annum
Solid operating margin and margin development
Strong cash flow generation
A more globalized brand
from 90% to 75% dependency on USA
Increased share of global customers
Business strength
Continuously maintain and win customer confidence
Developed and launched enhanced product offering, especially in Agricultural
Strengthened supply base of components and sourced products
Organizational strength
Accountable leadership, converting funnels into visible and connected value chain
Upgraded engineering, turn from contract manufacturer to development partner
Certified EHS practices ahead of similar competitors, improved worker conditions
CMD 2014

37. PEER market successes
Introduced a range of maintenance free tillage solutions
Expand a new range of elevator pulley solutions
Developped Ag distribution business
Improved taper roller bearing performance to access construction industry
10 Years awards in Deere – main supplier in Ag Attachments
CMD 2014

38. 6
Key business message

39. Continued good performance Strong cash flow and financial position
Key business message
Continued good performance
Strong cash flow and financial position
- implement restructuring program
- working capital focus
- use cash flow to deleverage balance sheet
Acquisition opportunities
- in the SKF platforms
- “normal performance” companies
CMD 2014